United States District Court, D. Massachusetts
SCOTT BREIDING, AMY POLLUTRO MIKAELA ORSTEIN-OTERO, BENJAMIN ROSE, MARGARET LEWIS AND RICHARD LEWIS, ERIC LONG, PETER STEERS, ERIK ALLEN, BRADFORD KEITH, JOHN ODUM, DAVID LEIGHTON, DONNA CORDEIRO, JANICE ANGELILLO, ANNA MARIA FORNINO, MICHELE TTA, JUDY CENNAMI, JANICE BRADY, OPAL ASH, MARK LEJEUNE, AND ROBERTO PRATS, on behalf of themselves and others similarly situated, Plaintiffs,
EVERSOURCE ENERGY and AVANGRID, INC., Defendants.
MEMORANDUM AND ORDER
J. CASPER UNITED STATES DISTRICT JUDGE
putative class of retail electricity consumers residing in
New England (collectively, “Plaintiffs”) have
filed this lawsuit against Eversource Energy
(“Eversource”) and Avangrid, Inc.
“Defendants”), alleging violations of the Sherman
Act, 15 U.S.C. § 2, and various state consumer
protection and antitrust laws. D. 33. Plaintiffs assert that
Defendants restricted New England's supply of natural
gas, a key component in the generation of over half the
electricity in New England, and, as a result, caused New
Englanders to pay nearly $3.6 billion dollars more for retail
electricity. D. 33 ¶¶ 1-2. Plaintiffs seek damages
and injunctive relief, including under the Clayton Act, 15
U.S.C. § 26. Defendants have moved to dismiss the
amended complaint. D. 41; D. 42. For the reasons set forth
below, the Court ALLOWS Defendants' motions to dismiss.
Standard of Review
considering a motion to dismiss for failure to state a claim
upon which relief can be granted pursuant to Fed.R.Civ.P.
12(b)(6), the Court will dismiss a pleading that fails to
allege plausible claims. Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007). “A claim has facial
plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
“This standard is ‘not akin to a probability
requirement, but it asks for more than a sheer possibility
that a defendant has acted unlawfully.'”
Saldivar v. Racine, 818 F.3d 14, 18 (1st Cir. 2016)
(quoting Iqbal, 556 U.S. at 678). A claim must
contain sufficient factual matter that, accepted as true,
would allow the Court “to draw the reasonable inference
that the defendant is liable for the misconduct
alleged.” Iqbal, 556 U.S. at 678 (quoting
Twombly, 550 U.S. at 557).
is no special pleading requirement for motions to dismiss in
the context of an antitrust action. In re Carbon Black
Antitrust Litig., No. CIV.A.03-10191-DPW, 2005 WL
102966, at *5 (D. Mass. Jan. 18, 2005). Nevertheless,
“it is not enough merely to allege a[n] [antitrust]
violation in conclusory terms.” E. Food Servs.,
Inc. v. Pontifical Catholic Univ. Servs. Ass'n,
Inc., 357 F.3d 1, 9 (1st Cir. 2004). Instead, the
“complaint must make out the rudiments of a valid
claim.” Id Therefore, “[w]hen the
requisite elements are lacking, the costs of modern federal
antitrust litigation and the increasing caseload of the
federal courts counsel against sending the parties into
discovery when there is no reasonable likelihood that the
plaintiffs can construct a claim from the events related in
the complaint.” In re Carbon Black Antitrust
Litig., 2005 WL 102966, at *5 (quoting Car Carriers,
Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir.
1984)). “With that said, a complaint should be
dismissed only if it appears beyond doubt that the plaintiff
can prove no set of facts in support of his claim which would
entitle him to relief.” Id (internal quotation
marks and citations omitted).
otherwise noted, the following facts are drawn from the
amended complaint, D. 33, and are accepted as true for the
consideration of the Defendants' motions to dismiss.
Regulatory Framework for the Interstate Transmission and Sale
of Natural Gas and Electricity
's Authority to Regulate the Transmission and Price of
the 1950s through the 1970s, the Federal Power Commission
(“FPC”) strictly regulated both the wellhead
price of natural gas and the interstate
transmission of natural gas pursuant to the Natural Gas Act.
D. 33 ¶ 72; see E. & J. Gallo Winery v. EnCana
Corp., 503 F.3d 1027, 1036 (9th Cir. 2007)
(“Gallo II”). Beginning in 1978,
however, Congress enacted legislation to reduce regulatory
oversight of the price of natural gas. Id. ¶
74. Congress further deregulated the price of natural gas
through the enactment of the Natural Gas Wellhead Decontrol
Act of 1989, which prohibited FPC's successor, the
Federal Energy Regulatory Commission (“FERC”),
from imposing any price regulations on “first
sales” of natural gas at the wellhead. Id
¶¶ 74-75. “First sales” include sales
by a natural gas producer to a pipeline or a direct
purchaser. Id ¶ 75. In 1992, FERC issued Order
No. 636, which permanently severed the sale of natural gas as
a commodity from the sale of natural gas transmission as a
service. Id ¶ 76. Following Order 636, FERC
allowed “natural-gas companies subject to [its]
jurisdiction to charge rates for gas determined by market
demand.” Gallo II, 503 F.3d at 1038. In short,
FERC replaced regulated rates for natural gas with
market-based rates. Id at 1039.
still retained authority to oversee rates charged for the
transmission of natural gas. Id ¶¶ 77, 80,
85. Because natural gas transmission is often a
“natural monopoly, ” (i.e., where a
single pipeline infrastructure is the only source of natural
gas transportation in a given area), FERC is charged with
ensuring that the transmission monopoly is not abused and
that prices are “just and reasonable.”
Id ¶¶ 80, 85. FERC does not regulate the
local, retail sale of natural gas after it leaves interstate
pipelines. See id ¶ 54.
Authority to Regulate the Transmission and Price of
Federal Power Act (“FPA”), 16 U.S.C. § 791a
et seq., authorizes FERC to regulate the
“transmission of electric energy in interstate
commerce” and the “sale of electric energy at
wholesale in interstate commerce.” Id ¶
49 (quoting 16 U.S.C. § 824(b)(1)). In particular, the
FPA obligates FERC to “oversee all prices for those
interstate transactions and all rules and practices affecting
such prices.” F.E.R.C. v. Elec. Power Supply
Ass'n, U.S., 136 S.Ct. 760, 782 (2016). However, FPA
places beyond FERC's power, leaving to the states alone,
the regulation of any other electricity sale, including the
retail sale of electricity. D. 33 ¶ 49 (citing Elec.
Power Supply Ass'n., 136 S.Ct. at 768).
Natural Gas and Electricity Markets
allege that Defendants' anticompetitive conduct in the
natural gas transmission market artificially inflated the
commodity market price of natural gas and the wholesale price
of electricity, resulting in higher retail electricity prices
for New Englanders. See, e.g., D. 33 ¶ 165.
Defendants' conduct in the upstream natural gas
transmission market allegedly impacted downstream retail
electricity prices due to the relationship and connection
between the markets at issue in this litigation. For example,
Plaintiffs assert that the price of natural gas is the most
significant factor in determining the price of wholesale
electricity because natural gas-fired power plants are the
primary generators of electricity in New England.
Id. ¶ 68. An increase in the price of natural
gas due to a shortage in natural gas supply, therefore, will
directly impact the price of wholesale electricity.
Id. ¶ 121. In that same vein, artificially
inflated wholesale electricity prices result in artificially
inflated retail electricity prices. Id. ¶ 63.
Accordingly, where, as alleged here, Defendants restricted
the natural gas supply to New England, Defendants allegedly
caused the market price of natural gas to increase, resulting
in an increase in wholesale and retail electricity prices.
the regulatory framework and Plaintiffs' allegations in
mind, the Court now turns to the New England energy markets
at issue in this litigation: (1) the commodity market for
natural gas, (2) the natural gas transmission market, (3) the
wholesale electricity market and (4) the retail electricity
Natural Gas Commodity Market
natural gas market encompasses two transactions: (1) the
purchase of natural gas; and (2) the transmission of natural
gas from seller to purchaser. Id. ¶ 76. With
respect to sales of the commodity itself, natural gas is sold
to consumers either directly from gas producers via contracts
called “gas futures” or through the “spot
market.” Id. ¶ 86. Futures contracts
allow gas producers to sell a specific quantify of gas at
some predetermined future time. Id. ¶ 87.
Purchasers with a steady natural gas demand, such as load
distribution companies (“LDCs”), which distribute
gas to retail customers, typically utilize futures contracts.
Id ¶¶ 84, 87. By contrast, entities with
variable or less predictable natural gas demand, including
natural gas-fired electricity generators, purchase gas on the
“spot” market. Id ¶ 88. The spot
market allows LDCs and other direct purchasers to resell
excess amounts of natural gas to which they hold title.
Id ¶ 89. According to Plaintiffs, the spot
market price of natural gas is not regulated by FERC and is,
instead, determined by supply and demand. Id ¶
90. Accordingly, the spot market price of natural gas
increases when the amount of available natural gas decreases.
Gas Transmission Market
addition to purchasing natural gas directly from gas
producers or indirectly via the spot market, gas purchasers
must also pay for the transmission (or transportation) of
natural gas to its final destination. Id ¶ 78.
In New England, a network of pipelines facilitates the
transmission of natural gas from the wellhead to the
purchaser (or a destination determined by the purchaser).
Id. As mentioned, as compared to the price of the
commodity itself, which is determined by contract or by the
market, FERC oversees the rates charged for transmission
capacity. Id ¶ 79.
process for reserving pipeline transmission capacity in New
England differs depending on the purchaser. See
id ¶ 99. LDCs have the option to enter
“no-notice” contracts, which give them the power
to reserve transmission capacity on a pipeline for a given
day and time, and to adjust that reservation “upward or
downward” at any time without penalty. Id By
contrast, other purchasers may be penalized if they do not
use the full capacity reserved on a given day or if they have
to reserve additional transmission capacity. Id.
capacity reservations play an important role in determining
the supply of natural gas available to gas purchasers in New
England because there is a fixed amount of pipeline capacity
on any given day. Id ¶ 107. In other words, the
transmission capacity reserved by one purchaser limits how
much capacity is available for other purchasers' natural
gas needs. Id. Even when LDCs adjust their capacity
reservations downward or cancel a reservation, that capacity
is not automatically released for others to use. Id.
¶ 108. For example, assume an LDC called Firm X reserved
enough capacity on a pipeline to move a total of 2400 cubic
feet of natural gas through a pipeline at a steady rate over
the course of a 24-hour period (i.e., 100 cubic feet per
hour). Id. ¶ 109. If Firm X cancelled 20 hours
of that reservation and did not affirmatively release the
excess capacity it reserved, then the pipeline would, for 20
hours out of the day, flow at 100 cubic feet per hour under
capacity. Id. In that example, other purchasers
would not be able to take advantage of the excess units of
natural gas capacity caused by Firm X's downward
adjustment of its capacity reservation. Id.
Wholesale Electricity Market
electricity is typically sold by electricity generators or
power plants to load serving entities (“LSEs”),
which then deliver electricity to retail consumers.
Id. ¶ 52. Some wholesale electricity is
purchased via contracts pursuant to which LSEs agree to
purchase a certain amount of electricity at a certain rate
over a certain period of time. Id. ¶ 53. These
fixed-rate, bilateral contracts are regulated by FERC, which
may review the agreed-upon rate for reasonableness.
Id. More often, however, wholesale electricity is
purchased through auctions between electricity generators and
LSEs. Id. ¶ 54. The auctions are administered
and overseen by intermediaries called Independent System
Operators (“ISOs”) or Regional Transmission
Organizations (“RTOs”), which are independent
non-profit organizations that FERC has charged with
facilitating an efficient market for wholesale electricity
while also ensuring reliability for electricity consumers.
Id. As part of their auction-related
responsibilities, ISOs and RTOs must file with FERC a tariff
that describes in detail the procedures for a given auction.
Id. FERC may review or approve the auction
procedures. Id In New England, auctions are
conducted in accordance with the ISO New England Inc.
Transmission, Markets, and Services Tariff (“ISO-NE
Tariff), which was approved by FERC and describes the rules
that govern ISO-NE's facilitation of auctions for
wholesale electricity in the region. Id. ¶ 61
(citing ISO-NE, Day-Ahead and Real-Time Energy
(last visited Sept. 10, 2018)).
are two types of auctions: (1) “same-day”
auctions for immediate delivery of wholesale electricity to
LSEs experiencing a spike in demand for retail electricity,
and (2) “next-day” auctions to satisfy expected
demand the following day. Id ¶ 54. In both
instances, the auction process is as follows. First, an ISO
(or RTO) obtains orders from LSEs indicating how much
electric energy is needed over a given period of time.
Id ¶ 55. Second, the ISO obtains bids from
electricity generators specifying how much electricity can be
produced during the relevant time period and how much they
propose to charge for it. Id Finally, the ISO
accepts the generators' bids in order of price (from
lowest to highest) until the total LSE demand is satisfied.
Id The price of the last unit of electricity
purchased is then paid to all generators whose bids were
accepted, even if their offer was lower. Id.
example, suppose that LSEs inform their ISO that they require
275 units of electricity for the day. Id ¶ 56.
Also assume the ISO receives the following bids from
electricity generators: Generator A offers 100 units of
electricity for $10/unit; Generator B offers 100 units of
electricity for $20/unit; Generator C offers 100 units of
electricity for $30/unit; and Generator D offers 100 units of
electricity for $40/unit. Id The ISO will accept
Generator A's $10/unit bid (and all 100 units offered);
then Generator B's $20/unit bid (and all 100 units
offered); and then Generator C's $30/unit bid (but only
the first 75 units offered). Id Given that the
wholesale demand from the LSEs was satisfied after the ISO
accepted part of Generator C's bid, Generators A, B, and
C will all be paid at a rate of $30/unit. Id. The
total cost of the 275 units of electricity will be split
proportionally amongst the LSEs, according to the units of
electricity ordered by each. Id.
Retail Electricity Market
wholesale electricity prices paid by LSEs are passed on to
retail customers. Id. ¶ 63. Accordingly, the
price of wholesale electricity influences the cost of retail
electricity. Id. ¶ 60.
Alleged Anticompetitive Conduct
Defendants' Alleged Market Power
allege a monopolization scheme in which Eversource and
Avangrid each allegedly abused their power over the retail
electricity market in New England through anticompetitive
conduct in the upstream natural gas transmission market.
Id. ¶¶ 5-8; D. 48 at 39. Plaintiffs
contend that Defendants possess the power to raise the price
of electricity in New England because they can restrict the
amount of natural gas flowing into the region and, therefore,
the amount of natural gas available to fuel natural-gas-fired
electricity generators. D. 33 ¶ 94. Plaintiffs point to
several aspects of Defendants' energy businesses to
suggest that Defendants controlled New England's natural
gas supply and, therefore, the price of retail electricity.
For example, New England's principal natural gas
pipeline, the Algonquin Gas Transmission Pipeline, is owned,
in part, by Defendant Eversource. Id. ¶ 95.
Both Eversource and Avangrid also own and operate, through
their subsidiaries, substantial “natural gas
utilities” known as LDCs-which purchase natural gas
directly from gas producers and, in turn, distribute natural
gas to retail consumers. Id. ¶ 97. Of the eight
largest LDCs in New England, half are owned by Eversource or
Avangrid. Id. As a result of their LDC
operations, Eversource and Avangrid possess a large number of
“no-notice” contracts for natural gas
transmission capacity along the Algonquin
Pipeline. Id. ¶ 99. As mentioned,
no-notice contracts allow LDCs to adjust their transmission
capacity reservations upward or downward at any time and
without penalty. Id.
addition to their natural gas businesses, Defendants
Eversource and Avangrid, through their respective
subsidiaries, operate retail electric utilities or LSEs,
which provide electricity to millions of residential,
commercial and industrial customers in New England.
Id. ¶ 101. The price of electricity sold by
Defendants' retail utilities is driven, in large part, by
the market-wide wholesale price of electricity established
within the ISO-NE market. Id. ¶ 104. When the
price of wholesale electricity established within the ISO-NE
market increases the price of electricity sold by Eversource
and Avangrid to their respective retail customers similarly
and Avangrid also own and operate renewable electricity
resources such as hydroelectric, wind and solar generating
facilities. Id. ¶ 105. Plaintiffs allege that
these facilities have low variable operating costs and, as a
result, are more competitive than natural ...